Value of owner financing

I’m interested in others view points concerning the value of owner financing. For example, would you increase your offer price based on the owner carrying a very favorable rate/term? Valuing MHPs solely on the NOI leaves out this strategic negotiated piece. A 2M note at 8%/20y has a monthly payment of $16,728 vs $12,119 at 4%/20y.

There is no question that seller carry is a big attraction in any deal. However, it does not change the valuation, only the extra premium you might be willing to pay on a deal if the price the seller wants is higher than what you want to pay. Many a deal has been solved through a low (or even 0%) interest rate. But be careful, as this approach only works if the seller carries the paper to the end, with no balloon. Otherwise, you’ll wake up in 5 years or 10 years and have to get a bank loan on the “real” price and be upside down.

Always value the property as if it is getting bank financing- in the market you are buying in. So first- figure the purchase price according to the bank financing, then look at the owner financing. If the purchase price goes up with the owner financing, you have a real problem.

You must use real cap rates, and do not skimp on the rest of the requirements. Get an appraisal, get the Phase 1, do a very good inspection, and have someone that really understands terms look over the whole deal, and tell you what they see…

There is a guy that does not live too far from me, and as a seller this is his game. Very low financing, so a good cash on cash return, but 5 years down the road when you need to cash out his financing, the principal amount is still much higher than the park is worth. He takes the park back, and sells it again. Nice down payment, gets his monthly checks, and the new owner defaults when the term is up.

Owner Financing is great- or the kiss of death…

I sold a park owner finance and my position was I was not willing to negotiate much. It was a fair price, but if someone had offered a cash sale I probably would have taken about 10% less. As a seller you have to look at how you are going to redeploy funds and your tax situation, etc. It was also a good deal for the buyer (zero down), but it was also someone I knew extremely well.